BANGI: Palm oil, which is currently trading at around RM2,600 per tonne, is sizeably undervalued and is set to recover, a top oils analyst said yesterday.
Hamburg-based Oil World executive director Thomas Mielke believes that palm oil prices have reached the floor and are set to recover in the months ahead, probably reaching or surpassing RM2,900 per tonne.
“Last year’s price lows of around RM2,300 per tonne are now fluctuating in higher territory, partly because of a considerably increased biofuels mandate in Indonesia, which will probaly lead to a trebling of Indonesian domestic biodiesel consumption this year,” he said.
In the last two weeks, palm oil traded at a premium to the South American soya oil. The world is actually facing tight supplies of palm oil, which Mielke estimates to rise by only 1.8 million tonnes in October to September 2013/14 season, compared with a year-on-year growth of 4.8 million tonnes previously.
He said prolonged drought in many parts of Indonesia, Malaysia and Thailand have stressed the trees and will result in lower- than-expected production in October-December 2014 as well as in 2015 and 2016.
“Weathermen see a 70 per cent risk of El Nino conditions occurring later in 2014, which would further complicate an already tight situation,” Mielke told a forum organised by the Malaysian Palm Oil Board (MPOB), here, yesterday.
“This season, world exports of palm oil will decline for the first time in 16 years. Some relief will come from higher world production and exports of seed oils, primarily soya oil and sunflower oil,” he said.
Mielke noted that global edible oil stocks are running low and are down about two million tonnes from last year, primarily in Indonesia, Malaysia, the United States and India.
“At present, palm oil prices of US$900 (RM2,907) per tonne in Rotterdam is not reflective of the fundamentals. I think palm oil still has room to appreciate to or above US$1,000.
For 2014, the price average will probably reach US$970 per tonne in Rotterdam,” he said.
He stressed that the oil palm industry must continue its focus on yield improvement to overcome the gap between actual and potential yields.
“Palm oil is the most important vegetable oil in the world. Together with palm kernel oil, they satisfy one-third of the world’s consumption and make up 63 per cent of the world’s exports of edible oils and fats. Please remember that this substantial amount of palm oil is produced on only six per cent of the world’s oil crop area. There is an urgent need to improve the logistics and supply channels so as to satisfy demand of consumers worldwide in a timely manner,” he said.
“Oil palm is the highest-yielding of all oil crops, as it is able to produce about four to five tonnes of palm oil per hectare in a year.
Attacks by these NGO (non-governmental organisation) big boys show that they do not understand the significance of palm oil to the daily diet of consumers all over the world, particularly in developing nations,” he said.
He said last year, the world’s production of palm oil amounted to 56.2 million tonnes, while consumption jumped to 57.3 million tonnes, adding that the world needs an additional five to six million tonnes of edible oils and fats every year.
“Indonesia and Malaysia must not be complacent. By 2020, palm oil output will have to reach at least 78 million tonnes to satisfy the daily oils and fats need of an increasing global population. The world needs to plant more high-yielding oil palms,” he added.
Source : New Straits Times